The Hamptons are doing okay

No, the Hamptons aren’t Greenwich, but the people who buy there, buy here, and things there look fairly solid.

So how is the Hamptons real estate market doing, a year after freezing solid?

A lot better than many people expected. Sales picked up significantly in the second half of 2009, as sellers dropped their prices and buyers made more realistic — as opposed to “lowball” — offers.

But even though list prices have fallen from the lofty levels homeowners once hoped to get, actual sales figures have not dropped off a cliff. The median sales price of a Hamptons home was $825,000 last year, according to Miller Samuel, an appraisal company that compiles market reports for Prudential Douglas Elliman. Although that’s down 15 percent from the peak of $975,000 in 2007, it’s only a 3 percent decline from 2008 and roughly where prices were in 2006.

“If you had asked me last year at this time where the market was going, I would have said: ‘Do you have a spare room? I might need to move in,’ ” said Paul Brennan, regional manager for Douglas Elliman’s Hamptons office. “But disaster has not happened. We did much better in ’09 than we ever would have anticipated.”

As the Hamptons go, so goes Greenwich? Part II

A regular contributor and friend (who also has a house he’d like to put up for sale if the market ever stabilizes) gleefully pointed out this article in today’s WSJ: Signs of Life in the Hamptons. The article (and my friend) claim that Wall Street guys, newly emboldened by visions of hefty bonuses at year end, are coming back into the market and buying baubles again.

Fair enough. But there’s this:

While the luxury real-estate market remains moribund in most parts of the country, there are a few signs of a nascent turnaround in the Hamptons, a string of beach communities housing some of New York’s wealthiest. The number of new deals put into contract jumped to 156 in August from 62 in July, says Corcoran’s Rick Hoffman, who tracks a listing system shared with other companies in eastern Long Island. Home sales also rose 34% to 344 units in the second quarter from the prior quarter, according to Suffolk Research Service Inc., a local real estate data firm. While up, that’s far less than the 576 units sold in the second quarter of 2008.

Hamptons developer Joe Farrell, who built his last spec home for more than $7 million two years ago, is ramping up again. Earlier in the spring, he says it was no problem getting 10% to 15% discounts on “blue-chip” lots south of Montauk Highway and within walking distance to the beach. Now, “some stuff is going into bidding wars,” says Mr. Farrell, who recently lost out on a one-acre lot on Bridgehampton’s Sand Piper Drive near the beach for $3.15 million.

Brokers remain circumspect about whether the surge heralds a real recovery. From May 1 to Aug. 31, pre-foreclosure filings in the Hamptons jumped 31% to 294 from year-earlier levels, according to Long Island Profiles, a publisher of real-estate and foreclosure data. Summer sales were “mediocre at best,” says Peter Turino of Brown Harris Stevens. “This is probably a temporary improvement. I think we’ll have a very slow winter.”

The sales jump partially reflects lower prices, but brokers say the increased activity also reflects changes on Wall Street, whose workers represent the largest proportion of Hamptons buyers. “I think word is that bonuses are going to be good,” says Ms. Sander, who notes the buyers of her Sag Harbor home work in finance. “I think it gives them confidence to buy.” The return of rank-and-file Wall Streeters helped activity increase most for homes under $6 million, considered here the middle-luxury tier of the market. Brokers say employees from Goldman Sachs, which recently reported net income of $3.44 billion for the quarter ended June 26, are particularly well-represented.

Everyone agrees that the Hamptons are a long way from total recovery. The median sale price of a home on Long Island’s East End was $560,000 in the spring of this year, down 32% from the peak price of $825,000 in the first half of 2007, according to Suffolk Research. Inventory remains high: In August there were 4,900 homes for sale in the Hamptons, or roughly the equivalent of about three years of inventory, according to StreetEasy, a New York-based online listing service. Some seasoned brokers say pent-up demand and a delayed spring selling season are responsible for the summer surge in activity. The market is “going sideways,” says Dottie Herman, president and CEO of PrudentialDouglas Elliman.

Sideways is better than off the cliff, admittedly, but we’re still close top that edge and a quick shove could produce a horrifying “look out below!” moment. My advice remains the same: buy quality land/location at a 2001 price and you’ll probably be fine in the long run (five years, say). Otherwise, you’re not necessarily going to lose, but you’re assuming a lot more risk.

He’s late to the party but still gets it

Joe Weisenthal of BusinessInsider.com looks at the NYT’s coverage of Hampton real estate and concludes that there’s trouble. Well, duh. But I do like this observation:

Actually, most telling, is an anecdote about a couple who purchased a home for $1.65 million in 2006, who tried selling it recently for $2.2 million. Nobody bit and they’ve been steadily dropping the price back down to where they’d merely be breakeven. We’re guessing they’ll have to cut further, since there’s no reason to think that inflated 2006 prices are market-rate anymore. But there’s something about the housing mentality that no matter the market conditions, people still think they should make a profit, or at least get their money back.

Once sellers finally give in though, watch out below.

Hampton Blues

As the Hampton go, so goes Greenwich? Not quite – different markets, vacation vs. year-round – but the buyers are from the same pool. And in the Hamptons, nothing’s selling. Per the NY Times Sunday Real Estate Section.

The Osborne Avenue house hit the real estate market at the end of the summer of 2007, a season that can be said, with the benefit of retrospect, to have marked the sweaty height of a speculative fever. That was the summer that the average cost of a home in the Hamptons shattered the $2 million barrier, the one when Ron Baron, a mutual-fund manager, paid a record $103 million for a 40-acre oceanfront estate. At the time, there were already alarming signs of a downturn in the national housing market, as a crisis took shape in the subprime-mortgage sector and economists predicted a coming onslaught of foreclosures. But that didn’t cause much worry in the Hamptons. The bubble might be bursting off in Sun Belt subdivisions, but not in the playground of the Wall Street elite. Prices were propelled upward by a tautological justification: if you were rich enough to buy in the Hamptons, you were, by definition, a superior judge of the market.

Then came the dreary series of events that we can summarize, as Hamptons people do, by reciting a litany of names: Bear Stearns; Fannie and Freddie; Lehman; Madoff. Since the peak, as one horrific episode after another has unfolded, the area’s real estate market has mirrored Wall Street’s plunging fortunes. Average sale prices have declined by about 10 percent, but that only hints at the seriousness of the trouble, because hardly anything is moving. According to data collected by the Suffolk Research Service, a local real estate data company, the number of sales in 2008 fell by 25 percent in East Hampton, 39 percent in Bridgehampton, 45 percent in Southampton and 47 percent in Montauk. Things really collapsed during the fall. Investment bankers lost their jobs, corporate lawyers saw their client base vaporize and hedge-fund managers went from being hailed as geniuses to being hauled in front of Congressional committees. “Until the market improves or their mental state improves, they’re not buying anything,” says Herb Phillips, a veteran real estate agent who is also chairman of the Southampton town zoning board. “It’s dead.”

It’s a really informative article that you should read in its entirety because it has a lot to say about what’s happening here – for instance, the difficulty in pricing anything when there are no sales to use for comparison. And here’s a profile of a spec builder that could easily be a Greenwich tale:

Catherine Lignelli, a first-time developer, built the mansion, and if she misjudged the market it wasn’t because she misunderstood the newcomers’ appetites. She was from their world. Her husband, Jeff Lignelli, manages a hedge fund, and their primary residence is a 22nd-floor apartment on Central Park South. In January, she met me at the headquarters of Stonebrook Fund Management, her husband’s company, to talk about her entry into Hamptons real estate. Tall and blond, wearing a stylish tweed blazer, knee-high leather boots and a white cashmere scarf, Lignelli showed me into an office that overlooked Park Avenue. She told me that she had gotten into real estate because it was a career that she could pursue while raising her daughter, Alexa, who is not yet 2.

“My focus was quality and aesthetics for family and friends, and seamless entertaining,” she said. “Without sounding feminist, I think that as a mother, as a wife, I can lend a lot to the details of what it takes for effortless, organized living.”

Lignelli has a degree in fashion design.

The Hamptons – not much different than Greenwich

And why should they be? Same people, same jobs. And out there, just like here, sellers have one perception of reality, buyers another. Some agents are trying auctions to flush out buyers who have cash but no strong desire to pay 2006 prices. I’m dubious – the auctions that have been tried here – one on Taconic Road, another a “lake chateau” in New Canaan – were busts, but the agents quoted make sense in other ways.

Do desperate times call for desperate measures?

Perhaps. But as sales have fallen off over the past year, many real estate agents have sung a familiar tune: There are eager buyers, with deep pockets, in the East End real estate market—if the price is right.

Many experienced real estate agents have complained in recent months that the sellers they are brokering for are stuck in the past, when home values climbed 20 percent a year. Those days are clearly over, at least for the time being, and selling a house now means finding the price that buyers will bite at.

Identifying that “right” price can be difficult though.

Two local brokers think that the trick might just be a matter of letting buyers, or bidders, set the going rate. Start at an absolute minimum and see how high the bidding goes.

“I did seven deals in December all because I convinced the sellers to bring their prices down to a level that I knew they would sell at,” says Enzo Morabito, one of two Prudential Douglas Elliman brokers who are organizing a house auction—not of houses in foreclosure, just ones that need to get sold soon.

Rather than merely trying to convince all their clients that they need to lower their prices, Mr. Morabito and fellow Prudential vice president Vince Horcasitas are out looking specifically for those motivated sellers who don’t need convincing—they just need buyers.

Mr. Morabito and Mr. Horcasitas think that putting properties that must sell on the auction block, selling to the highest bidder, will naturally bring that “right” price for a given property.

The pair is compiling a small collection of properties owned by people who need to sell sooner, rather than later and will put them up for auction sometime in February. “There’s inventory out there that people can’t sell at the 2006, 2007 prices that we think there will be buyers for at some price,” Mr. Morabito said. “If they have a $3 million loan they payments may be $14,000 to $20,000 a month. That’s $300,000 a year. Time is really of the essence in some cases.

“I’ve told people if they can wait two years, don’t sell, but if they can’t they need to do something,” he said. “We’re doing something.”